The Bowerman Warehouse Corporation (BWC) is organized in Oregon and operates 15 retail and grocery stores in several of the western United States. BWC is owned by a small group of private equity investors. BWC follows generally accepted accounting principles (GAAP). It uses the same fiscal year (a calendar year) for tax and book purposes. BWC’s balance sheet shows the deferred tax assets and liabilities that were created in prior years. BWC’s CFO has asked for your assistance in generating the information needed for the corporation’s financial statements. The financial accounting records of BWC for the current year produce the summarized trial balance (see attached Excel File). Other information is available from last year’s tax file and supporting records. Follow all of the public company disclosure rules of ASC 740, without regard to materiality or significance.

Additional Information

• BWC’s delivery truck drivers were responsible for $78,000 in speeding tickets (included in part of operating expenses on the trial balance), all of which the company paid during the current year.
• Inventories are recorded using the LIFO (last-in-first-out) method of accounting. In addition, for tax purposes some expenses must be capitalized using the UNICAP rules. In the last fiscal year, $220,000 were capitalized for tax; in the current fiscal year, UNICAP amounted to $350,000. Assume that all inventory turns over more than once per year.
• BWC holds life insurance policies on its five officers. Premiums in the current year amounted to $138,550 (included in part of operating expenses on the trial balance). No deaths occurred in the current year; thus, no life insurance proceeds were collected.
• BWC sold some of its business assets for a net gain of $195,000 as reported on the company’s trial balance. Net book value of these assets was $1,160,000 at the time of the sale. For tax purposes, adjusted basis was $660,000.
• BWC used MACRS for tax depreciation. Depreciation expense for tax was calculated at $5,093,833.
• BWC contributed $880,000 to its defined benefit retirement plans (included in part of operating expenses on the trial balance), but due to carryovers $1,230,000 qualified for an income tax deduction in the current year.
• BWC’s tax department reported $47,500 total of documented expenses for meals and entertainment (included in part of operating expenses on the trial balance). Under the current law, one-half of these are deductible for tax purposes.
• Interest income in the current year was $60,000 from corporate bonds and $22,000 from municipal bonds.
• BWC holds a $418,000 NOL carryforward, for both state and federal purposes.
• Of the accounts receivable $10,000 were written off in the current year.
• Statutory tax rates for BWC are 21% federal and 5.5% for the states (blended). Unless otherwise noted, state income tax laws piggyback onto federal income tax provisions in all states in which BWC has nexus.
• BWC’s CFO informs you that the company does not project that it will generate any additional net capital gains in the next five years. This fact jeopardizes the corporation’s ability to use its $140,000 capital loss carryforward before the five-year period expires. Management agrees to create a valuation allowance in the amount of 75 percent of the carryforward amount.
• BWC’s CFO is concerned that some of its current-year accelerated cost recovery will be disallowed after an IRS audit is completed. The BWC tax department has constructed the following table of the likely outcomes of the audit negotiations on this point.

Total Cost Recovery Deduction, as Negotiated with IRS	Probability of the Parties Agreeing to This Amount
$800,000	10%
$700,000	25%
$500,000	30%
$200,000	35%

The deferred tax assets and liabilities at the end of the last year (per Trial Balance from 2021) were as follows:

Deferred Tax Assets	Beginning Book-Tax Difference	Tax Effect(*) (State & Federal)
Inventory / Unicap	$ 250,000	$ 63,363
Accounts Receivable / Bad Debt Expense	$ 40,000	$ 10,138
Defined Benefit Plan Contributions	$ 350,000	$ 88,708
Net Operating Loss Carryforward	$ 418,000	$ 105,942
Capital Loss Carryforward	$ 140,000	$ 35,483
Total Book-Tax Difference	$ 1,198,000
TOTAL DTA		$ 303,633
Deferred Tax Liabilities	Beginning Book-Tax Difference	Tax Effect(*) (State & Federal)
Accumulated Depreciation	$ 2,850,000	$ 722,333
PPE Adjusted Basis	$ 7,750,000	$ 1,964,238
Held-for Sale Securities	$ 100,000	$ 25,345
Total Book-Tax Difference	$ 10,700,000
TOTAL DTL		$ 2,711,915

Recall that the blended rate for states is 5.5%; the federal rate is 21%.

QUESTION:

Identify and measure BWC’s book-tax differences. Classify each of the book-tax differences as temporary or permanent.